The US administrator handling FTX’s bankruptcy proceedings has called the defunct exchange the “fastest major business failure in US history” and calls for an independent investigation into its downfall.
In a motion filed on December 1, the trustee Andrew Vara noted that, over the course of eight days in November, debtors “suffered virtually unprecedented loss in value,” from a market high of $32 billion at the start of the year to a severe liquidity crisis following a “proverbial ‘bank run'”:
“The result is what is probably the fastest major corporate bankruptcy in US history, which has given rise to these ‘freefall’ bankruptcy cases.”
Vara has called for an independent examination of FTX, stating that it was “especially important given the broader implications that the collapse of FTX may have for the cryptocurrency industry.”
Independent examiners often intervene in bankruptcy cases when it is in the interest of creditors, or when unsecured debts exceed $5 million.
This type of examiner has been called upon in other high-profile bankruptcy cases, such as Lehman Brothers, and more recently to examine allegations of mismanagement by Celsius as part of its ongoing Chapter 11 bankruptcy case.
“Like the bankruptcy cases of Lehman, Washington Mutual Bank and New Century Financial before them, these cases are exactly the type that require the appointment of an independent trustee to investigate and report on the extraordinary collapse of debtors,” the Trustee said.
Rod added that, As for the FTX collapse, “the issues at stake here are too big and important to be left to an internal investigation.”
According to the motion, The appointment of an examiner – which requires the approval of the judge – would be in the interest of clients and other interested parties, since they could “investigate the substantial and serious allegations of fraud, dishonesty, incompetence, misconduct and mismanagement” by FTX.
Furthermore, the motion suggests that An examiner could investigate the circumstances surrounding FTX’s collapse, customer funds that moved off the exchange, and whether entities that have lost money on FTX can claim back their losses.
FTX CEO John J. Ray III, who replaced Sam Bankman-Fried on November 11, has been highly critical of the company’s operations since he took control, pointing to the first day in court that it was used “software to hide the misuse of client funds” and “a complete absence of reliable financial information”adding that control was concentrated “in the hands of a very small group of inexperienced, unsophisticated and potentially compromised people.”
Although the trustee acknowledges that stakeholders will be concerned that the appointment of an examiner will have costs and may intersect with FTX’s internal investigation, he suggests that these concerns do not negate the need for an examiner.
In related news, The US Attorney’s Office for the Southern District of New York and the US Securities and Exchange Commission have sent a series of requests to investors and companies that have worked closely with FTX, asking for information about the company and its key figures.
for now, Authorities have yet to file charges, but appear to be closely investigating the exchange.
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